Friday, April 07, 2006

Beware of the Neighborhood Grapevine

A comparative housing market analysis, or CMA, is a real estate agent's evaluation, based on local listing and sales data, to determine the probable sale price of a property in the current market. Sellers can use a CMA to help determine a list price. Buyers can use a CMA to help them decide what to offer on a listing they want to buy.

The accuracy of the analysis will depend in part on the quality of the data. The listings used for comparison should ideally be located in the neighborhood, and they should be as similar as possible to the subject property.

To get a complete picture of your local marketplace, the CMA should include information about currently available comparable listings, pending sales, sales that occurred within the last 6 months, as well as information about listings that did not sell during the listing period. These are called expired listings.

For sellers, the currently available listings would be your competition if your home were on the market. How you price your home relative to the competition is critical to the success for your marketing efforts. If possible, visit Sunday open houses to see how your home compares before you select a list price.

Pending sale listings in your neighborhood represent the most recent sales activity. Try to find out as much about these listings as possible. Beware of the neighborhood grapevine. A combination of wishful thinking and enthusiasm can result in a rumor that a listing sold for an inflated price. The actual sale price may be quite a bit lower. And, that price may not be made public until the sale closes.

Even before you have the closing price, inferences can be made about the selling price based on the market history of the listing. Find out how long it took to find a buyer for the home. Were there multiple offers? Or, did the listing take months to sell? Did the sellers have to lower their price to attract a buyer? This sort of information tells you a lot about the current market conditions.

Expired listings usually indicate a high water mark. The most common reason why an expired listing didn't sell during the listing period is that it was priced too high for the market.

House Hunting Tip: Carefully analyze the information about listings that have sold and closed. Closing occurs when title to the property transfers from the sellers to the buyers. These are the sales that actually went through. This sales data is the most reliable indicator of what the market will bear price-wise. Market value is determined by what a willing and able buyer will pay.

Typically, the sales should have occurred no longer than 6 months ago. However, in a market that is changing rapidly, six months may be too long a time frame. When home prices are moving up or down quickly, it's wise to shorten the time frame. Six-month-old listings may be out of date. Try three or four months.

Estimating a probable sale price based on a CMA involves a certain amount of subjectivity. Accurately predicting a sale price is easiest in neighborhoods of tract housing where all houses are pretty much the same. It's more difficult in neighborhoods where there's a lot of variability in home size, style and condition.

The Closing: A real estate agent's knowledge of the local market can affect the accuracy of a CMA, particularly in a neighborhood with a lot of variability in the housing stock. Unless the agent has actually seen the comparable listings, he or she may not draw the correct conclusions.